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How To *Actually* Budget Using The 50/20/30 Guideline

This post is in partnership with Lexington Law, thank you for supporting brands who support TCM. As always, all thoughts, opinions, experience, and advice is my own.

I like to use the 50/20/30 guideline as a general rule of thumb when teaching people how to budget since everyone’s financial situation is different. It keeps things simple – seriously it boils down to only three numbers you have to remember, versus a million of tiny categories! Plus, it makes it extremely clear where your finances are out of alignment and allows you to tweak accordingly.

WTH does 50/20/30 stand for?

Basically a super simple three number budget. 50% of your income goes towards “needs,” 20% goes towards “goals,” and 30% goes towards your “lifestyle.” Meaning you only have to remember three numbers versus how much you’ve allotted for smaller categories like “entertainment” or “meals out.” It keeps things easy and allows you to go with the flow throughout your day-to-day life.

How To Apply The 50/20/30 Guideline:

1) Start by looking at your total income.

For this example I’m going to use the millennial average of $37,000 per year net income.

2) Divide your annual net income by 12 to get your “monthly” take home

Example: $3,083 per month

3) Take your monthly take home number and multiply by .5 to get your “needs” number

Example: $1,542

4) Take your monthly take home number and multiply by .2 to get your “goals” number

Example: $616

5) Take your monthly take home number and multiply by .3 to get your “lifestyle” number

Example: $925

This gives you a 3 number budget where you can just tick things off until you’re left with zero every month. This is especially handy when it comes to your lifestyle expenses since you won’t have to track every little thing.

It’s a similar concept to the old “envelope” days of budgeting; where you create a different envelope for each category, place your budgeted amount for the month in cash in the envelope, and then just pull from the envelope throughout the month.

So to continue with the running example, you’d put $925 in an envelope for fun stuff that month, and go out to eat and enjoy all the concerts you want until that envelope is empty! Much easier than tracking a specific budgeted number for “entertainment,” “subscription,” “meals out,” etc.

Here’s why I think the 50/20/30 guideline is so great:

As a general rule of thumb, you don’t really want to spend more than half your income on needs (rent, insurance, utilities, etc.). If your rent alone is taking up 60% of your paycheck, then you need to increase your income or find a new place to live! Hence why I say this is a great rule of thumb – it makes it super clear where things are “out of alignment” in your spending without getting into tons of complicated categories and numbers.

The problem with the 50/20/30 rule:

As millennials, our debt or living expenses often far exceeds our income. Which is why I recommend tweaking this to meet your unique situation, and also having an understanding of good debt vs. bad debt and which type you have. Most people put debt or student loans into their “goals” number, so maybe your budget will look like 55/25/20.

50/20/30 Guideline and Debt:

Like I said, it’s no secret that millennials are getting the short end of the stick when it comes to finances. Between student loans and insane cost of living, most are struggling to get out of debt, boost their credit score, and finallyyyy live their best life.

With that said, since most people recommend putting debt in the “20” of financial goals – that might not be your best move. When you get this rough number breakdown for yourself, look at where it’ll put you in your debt repayment process. After all, my friends at Lexington Law agree that “a solid budget can mean the difference between success and disaster.” Maybe you tweak this to be 40/40/20 to meet your personal finance situation.

Lexington Law also suggests doing regular audits (read more tips here!) on your expenses to see where you can reduce unnecessary debt. One area I’m telling people to really take a hard look at is their subscriptions! Seriously – do you really need both Hulu and Netflix? Probably not. Especially with the way we binge shows, you’re better off doing a month long Netflix binge, and then a month long Hulu binge and just canceling/re-upping your subscriptions accordingly.

Lastly, don’t forget knowledge is power. Lexington Law has SO many great articles on their blog to help you get out of debt, repair your credit score, and so much more. But it’s also important to know when to ask for help; and their credit repair experts are here to help you.

Common Questions Answered on the 50/20/30 guideline + some tips to make it work for you:

Q1: Where does food fit into the budget? Is it a need or lifestyle expense?

Since you can always spend more *or less* on food, I’m going to say it’s totally up to you! It’s both in your needs and in your lifestyle.

Example: If you break down your salary into the 50/20/30, and add up your rent/mortgage, utilities, insurances, etc and are already over your “50” number, then maybe put food into a lifestyle expense or do a 60/20/20 breakdown. If you add all those things up and are coming in under you “50” number, then use whatever is left over for your groceries, and then any money you spend beyond that on meals out or splurges will go into your lifestyle number.

For instance, when I’m budgeting my life like a champ, I only spend $50 per week on food for myself. That’s an easy “hard” number to put in my “needs.” On the flip side, I’ve worked with life coaching clients who spend $500 a week on food. – Hence it’s a personal journey. Since everyone has different thoughts and opinions I really encourage you to make your budget, and then see where this would fit for.

If you really want my recommendation though, I’d say put your *essential* grocery items in your “needs” (50%) and then any meals out or indulgences go into lifestyle (30%). This is honestly the trickiest part of the budget IMO, and once you’ve decided where/how you want to deal with food it’s smooth sailing!

Q2 UGH! I’m trying to make this work, but every way I play with the initial numbers I’m still going over my expenses! How am I supposed to budget if I can’t make this work?!?

If you can’t make your budget work in this guideline with some mild tweaks, it’s definitely time to make a change! Start selling your stuff, take a long, hard, *critical* look at all your subscriptions and “lifestyle” choices and figure out what you can nix. Remember, a retailer isn’t going to help you retire in the style you want – so stop giving them your money and start investing in yourself with the help of professionals like Lexington Law.

Looking for more ways to step up your finances? Grab TCM’s checklist for ways to save on a budget!

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I'm Rachel, the founder of The Confused Millennial, a lifestyle blog sharing personal experience and advice to help other confused millennials navigate this whole "#adulting" thing on topics like careers, entrepreneurship, finance, the home, relationships and more.
After earning my Master's Degree in Counseling, and landing my "dream job" I found myself feeling completely miserable with no work-life balance. I rectified the situation by getting in touch with my passions and started coaching millennials to create their own blog or business that they could turn into a fulfilling and sustainable career. My expertise has been seen on Forbes as a contributing writer, Fast Company, Brit + Co, Dailyworth, and more. Learn more about working together on turning your blog into a business here.

About Me

Hi there! I'm Rachel, the founder of #TCMillennial. I am a multi-passionate millennial who loves helping others embrace who they truly are while figuring out this whole "adult" thing. On the blog, you'll find all things #adulting like: real talk, tips for professional development, and so much more! If you want to write a guest post or request a topic, get in touch!